Chapter 9 Lecture


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  • Estimated running time: Chapter 9 is entitled “Business in Politics.” It talks about the long-standing relationship between business and elected governments. Let’s explore this topic.
  • Concerns about the likelihood that business will have a greater influence on the workings of government than ordinary people are not new, as evidenced by this quote from Adam Smith in 1776. READ SLIDE.
  • Exiting U.S. President Dwight D. Eisenhower warned particularly that DEFENSE CONTRACTORS were, in his view, likely to have an inappropriate amount of influence over the spending decisions of the U.S. government unless the citizenry remained EXTREMELY VIGILANT of this possibility, and he coined the expression “Military-Industrial Complex” to make his point. In his farewell speech to America, a few days before he left office, he said this: READ SLIDE.
  • Alexander Hamilton was the nation’s first Secretary of the Treasury. He was very pro-business, and his policies helped American business grow and expand rapidly in the early years of the nation. He was killed in a duel with vice president Aaron Burr in 1804.
  • With the political power of Southern Agriculture decimated by the Civil War and its aftermath, Northern industry’s influence over politics in Washington grew even stronger during the period 1865-1890. It was common knowledge that legislators did what powerful corporate leaders in their state told them to do; because if they didn’t, they couldn’t get re-elected. West Virginia & Kentucky were known as “coal states” because it was believed that their legislators did what the coal mining companies told them to do. New York, California, Illinois, and other Midwestern states were known as “railroad states” because it was believed that their legislators did what the railroads told them to do. Montana was known as a “copper state” because the copper mining companies controlled things. Ohio, Texas and Pennsylvania were known as “oil states” because it was believed that their legislators did what the oil companies told them to do. This led to political cartoons like this one by Joseph Keppler, first published in 1889. This is the floor of the U.S. Senate. The small men in front are the elected Senators. The giant men in back that look like big money bags represent the dominant firms in each industry. The peoples’ entrance to the Senate is marked “closed”. The sign at the back of the room says “this is a senate of the monopolists by the monopolists for the monopolists. The age of this cartoon shows that people have been concerned in America about business – and especially LARGE companies – having excessive influence over government for at least 120 years.
  • Ulysses S. Grant, who had been an important General in the Civil War, was elected to the Presidency in 1969 and spent two terms there. But his Presidency was terribly scandal-ridden. This was a low point in American politics. There were many scandals involving Grant’s cabinet during this time. I have listed only the two most famous ones. During his first term, the most-famous scandal was the “Whiskey Ring scandal,” which had two parts. In the first part, over 3 million dollars in taxes were stolen from the federal government with the aid of high government officials. In the second part, Secretary of War William W. Belknap was discovered to have taken bribes in exchange for the granting of licenses from the federal government to sell liquor to Indian tribes at government trading posts. During Grant’s second term, the most famous scandal was the Credit Mobilier scandal, in which it was discovered that the Credit Mobilier Company had given members of Congress shares of its stock to avoid an investigation of its fraudulent railroad construction work. If you take a look at the “Scandals during Grant’s Presidency” link under “Other Interesting Links to Explore” in chapter 9, you can learn about three more scandals that occurred during Grant’s presidency. It is no accident that it was shortly after Ulysses S. Grant’s presidency that the Populist movement got started. This was a movement primarily of farmers, who pointed to 1) the fact that they were having trouble making a living, 2) the fact that the railroad companies and banks they were forced to deal with were getting rich, and 3) all the evidence of corruption at the highest levels in government and business and asked Americans if they had or had not had ENOUGH of this nonsense. To remedy the problems, the Populist movement sought government OWNERSHIP of the railroads, among other things. In the end, they got less than they had asked for, but they did get some changes. They got government REGULATION of the railroads with the establishment of the Interstate Commerce Commission in 1887.
  • The seventeenth amendment to the U.S. constitution changed the system by which U.S. senators were elected. Previously, U.S. Senators had been chosen by state legislators. Only members of the House of Representatives were elected by popular vote. The seventeenth amendment changed that, making Senators elected by popular vote as well. Corporations fought this amendment, but their motives were not pure. Simply stated, they LIKED the extra influence they had over U.S. Senators that the old system afforded them. There was ample evidence that the old system was causing political corruption. For example, in 1884 representatives of Standard Oil called members of the Ohio legislature into a back room where $65,000 in bribes was handed out to obtain the election of Henry B. Payne to the U.S. Senate. One witness saw “canvas bags and coin bags and cases for greenbacks littered and scattered around the room and on the table and on the floor…with something green sticking out.” $65,000 was a lot of money back in those days. People were shocked when they learned about this, and that’s why the seventeenth amendment was passed.
  • The great political reforms of the progressive era were reactions to corruption in a political system dominated by business. While business power was more often checked after the turn of the century, it remained preeminent.
  • Warren G. Harding’s presidency was so beset by scandals that Congress was considering impeaching him when he died of a stroke in 1923. The worst scandal involved Secretary of the Interior Albert B. Fall, who accepted bribes from oil company executives in exchange for the right to pump oil from government reserves in Teapot Dome, Wyoming.
  • The next big turning point in the relationship between Business and Government in the United States was called “The New Deal.” The new deal was formulated in response to the Great Depression. The Great Depression lasted from approximately 1929 – 1935. During the Great Depression: The official unemployment rate reached 25%, but the real figure was probably much higher. Many conservative business executives argued publicly that the depression would correct itself without government action. President Herbert Hoover accepted their arguments. He kept telling Americans that “prosperity was just around the corner.” Americans responded by making the song “which corner?” popular in 1932.
  • President Hoover’s attitude and the attitude of the leading businessmen who advised no action by government to correct the situation irritated a lot of Americans. They concluded that the rich just didn’t care about their suffering. Americans’ confidence in their business leaders’ morality fell to a new low. People were ready for a change. They elected President Franklin D. Roosevelt in 1932 on a platform of change.
  • After the election of President Roosevelt, corporations fought his efforts to regulate banking and industry, strengthen labor unions, and enact social security. They called him “Stalin Delano Roosevelt” and said his policies were bringing America a giant step closer to communism. They started a whispering campaign – totally false – that he had been declared insane by his doctor. They were fighting dirty! Leaders of DuPont, General Motors, Standard Oil, U.S. Steel, J.C. Penney, Heinz, and other firms formed the anti-Roosevelt American Liberty League. Roosevelt was hurt by all the hate and felt that through his major New Deal programs, he had saved capitalism in spite of the capitalists. After the Great Depression, Americans would believe for at least 50 years that government should be used to correct the flaws of capitalism and control the economy so that prosperity would no longer depend solely on unbridled market forces.
  • During the late 1960s, new citizen action groups arose to champion the rights of consumers, the environment, taxpayers, and people of color. These groups had success in pushing new regulation through Congress. Business was unaccustomed to defeat. They began to invest more in countering this new political power of citizen groups. They did this by spending more on lobbyists and more on political campaign contributions. Once they had succeeded in counteracting citizen power, they continued their level of effort, flexing the newfound muscle to influence the pro-business legislation of the 1980s and 1990s.
  • Business and politics intersect in two separate activities. In the electoral process, candidates attempt to get elected, and they collect campaign contributions so they can run expensive TV ads and convince voters to vote for them. Corporations have not been able to give money DIRECTLY to candidates’ political campaigns since 1907, but there are many INDIRECT ways that they help politicians raise this money. Lobbying is defined as “advocating a position to government.” Because corporations are treated as INDIVIDUALS under the law, they are afforded similar rights to call or write their Congressmen that flesh-and-blood people are given. Corporations exercise these rights in a variety of ways, as we shall see. Law and etiquette both require that the two activities shown on this slide be kept separate, but most people suspect that the separation between these two activities is not nearly as complete as appearances would indicate. Political etiquette requires that lobbyists and elected officials not discuss legislation and campaign contributions in the same meeting, in order to avoid the appearance of one being given in exchange for influence over the other. But just because you don’t discuss them in the same meeting, does that mean that there is NO relationship between the two? I highly doubt it, and so do most people. What is unknown is the exact DEGREE to which campaign contributions given by business during the ELECTORAL process influences politicians’ OPENNESS to pro-business ideas on the LOBBYING side. Let’s take a closer look at this important issue.
  • How do businesses let their elected representatives in Congress know which direction they would like them to vote on particular bills currently pending in Congress. The answer is “through lobbying activities.” First of all, there are three main ways a business can communicate their preferences to their elected representatives: through self-representation, by hiring third parties to REPRESENT their interests, and by joining and funding the activities of BUSINESS INTEREST GROUPS. More than 700 corporations have staffs of government relations experts in Washington. These Washington offices are set up mainly by big companies. Every person in these offices is a fulltime, salaried employee of the corporation. They just happened to be stationed in Washington, D.C., and their fulltime job is to let government officials know how their employer recommends they vote on particular issues, and why. Studies indicate that about 75% of all LARGE firms in the U.S. hire private lobbying firms to represent their interests to elected officials. Medium size and small firms usually operate through the business interest groups, which we’ll talk about in a minute. Lobbyists are usually partners or highly-paid employees of lobbying FIRMS in Washington. Many of them have backgrounds as lawyers. Many of them are also former government officials. There’s a really juicy story about a lobbying firm that tries to help a company called Westar get a certain small provision added to several pieces of federal legislation at the end of chapter 9. It is called “Westar Goes to Washington.” You have probably already read it. It shows that lobbying firms often formulate a specific strategy of political giving for their clients. It shows that, in lobbyists’ minds at least, the money corporations give to help politicians get re-elected and the specific changes they are looking for in individual pieces of legislation ARE linked. They are LOOSELY linked, but they are LINKED. I have a separate slide to talk about the Business Interest Groups, so let’s go to that now. Business interests also form coalitions to create broader support by joining trade associations and other business interest groups and paying membership dues which are used for lobbying on behalf of the industry.
  • The business interest groups are the third channel through which businesses seek to lobby government. They are divided into two main types: Peak associations and Trade associations. The peak associations represent many different companies and industries. Examples include The U.S. Chamber of Commerce The National Association of Manufacturers The National Federation of Independent Businesses, and The Business Roundtable Of these, perhaps the MOST influential is the Business Roundtable is composed of the CEOs of the 200 largest U.S. corporations. Membership is by invitation only. They personally attend the meetings of the group and act as its lobbyists to carry their message directly to Washington. What makes these PEAK ASSOCIATIONS rather than TRADE ASSOCIATIONS is that they sit at the PEAK or the TOP of a large, disparate group of businesses. TRADE ASSOCIATIONS, in contrast, draw their entire membership from the firms of a SINGLE INDUSTRY. Thus, the INTERESTS of the companies who have joined trade associations tend to be more HOMOGENOUS. This is one of the most important reasons they are more INFLUENTIAL IN POLITICS than the PEAK ASSOCIATIONS. You may think that all businesses have the same interests, but they definitely don’t see it that way. The same piece of legislation that would HELP an oil drilling company might HURT fisherman in the fishing industry, and so on. The peak associations have a lot of trouble getting ALL their members really excited about the same issues. TRADE ASSOCIATIONS don’t have that problem. There are only a handful of important business peak associations, but the number of industry trade associations is staggering. There are more than 6,000!
  • READ SLIDE. Then say: Recall from the “Westar Goes to Washington” case that when Richard Bornemann attended Representative Tauzin’s fundraiser, he got kicked out of the party – thrown out by bodyguards – the minute he was spotted. Representative Tauzin was angry with Mr. Bornemann for having given him some inaccurate information about a bill, and had basically banned the guy for life from ever meeting with HIM or with any member of his staff. So deceiving a Congressman just ONCE can spell death for your career as a lobbyist. I mean, your effectiveness is zero if you can’t even get in to SEE the guy!
  • The Tillman Act was the first major piece of U.S. legislation designed to curb the influence of corporations on politics in America. It was passed in 1907. It is a federal statute – that means a federal law passed by Congress. The presidential election of 1900 was between William McKinley and William Jennings Bryan. Mark Hanna, a close friend of McKinley's, Chairman of the Republican National Committee, and chief fund raiser for McKinley’s reelection campaign, had devised a system of quotas for contributions from large corporations. Most of McKinley's six to seven million in campaign funds came because Hanna levied regular assessments on the major corporations. He called them and pressured them to give. When the public learned about this, they were ready for a change. President Theodore Roosevelt campaigned for President in 1904 on a platform of change in which he promised to break the link between corporate contributions and politics. Roosevelt lobbied hard for the passage of the Tillman Act, and he got it. The Tillman Act is still the law today. Because of it, a U.S. corporation cannot give one penny directly to the re-election campaigns of any federal official. Most states have enacted similar laws covering state elections. But corporations found creative ways around the Tillman Act. They loaned money to candidates and then later forgave the loans. The paid big money for postage stamp sized ads in political party booklets. They loaned employees to campaigns, and they provided free services such as air travel or rental cars. They gave salary bonuses to managers for use as campaign contributions. And finally, the rich CEOs stepped in and gave generously to political campaigns from their own personal wealth.
  • After Richard M. Nixon’s election to the Presidency in 1968, somebody uncovered the fact that billionaire W. Clement Stone had given $2.2M to the Nixon campaign through a maze of committees. At the time, this was not illegal, but it was a staggering sum, and once again, people began saying that something needed to be done to reduce the greater influence of the rich and powerful on federal politics. By 1971, Congress HAD done something about it. They had passed the Federal Election Campaign Act of 1971. This did NOT place any caps on contributions, but it required full disclosure of all contributions both by the donor and the political candidate. When the data for the 1972 President elections began to roll in, people saw how much money the rich were giving, and how little money everybody else was giving, and continued to discuss vigorously whether further action by Congress was necessary. Then, in 1974, the Watergate investigations revealed that 21 corporations had violated the Tillman Act by making direct contributions totaling $842,000 to the Nixon campaign in 1972. People were ready for a change, so Congress passed a set of major amendments to the Federal Election Campaign Act in 1974. The Amendments were a bigger deal than the original 1971 FECA Act! We will talk about these amendments in part 2 of the chapter 9 lecture. THIS CONCLUDES PART ONE OF THE CHAPTER 9 LECTURE.
  • The 1974 FECA Amendments had two main parts: limits on campaign EXPENDITURES that were defined on a per CANDIDATE, per election basis, and limits on campaign CONTRIBUTIONS that were defined on a PER DONOR per election basis. This was the biggest thing to hit the regulation of political elections since the 1907 Tillman Act. The limits on campaign expenditures were struck down as unconstitutional in a 1976 U.S. Supreme Court case called Buckley v. Valeo. Basically, the U.S. Supreme court declared in that case that campaign spending is a form of speech, and as such, is protected by the First Amendment to the U.S. Constitution. Now, speech can be regulated, but there needs to be a “compelling government interest” in such regulation and the people who pass the law regulating or limiting that speech have to be able to convince the Supreme Court that #1, the proposed limitation on speech is likely to significantly contribute to the achievement of the goal that the government is trying to achieve, #2 that there is no other way to achieve that goal that doesn’t limit speech, and #3 that the goal itself is a valid, appropriate, and important goal for government to be pursuing. Basically, the majority in the Supreme Court said that having free and fair elections is a valid goal, but they didn’t see how limiting campaign expenditures was necessary to achieve that goal, so they struck it down. But this still left the limits on CONTRIBUTIONS. Now, those limits have been amended at least twice since 1974: once in 1979 and again in 2002 by the Bipartisan Campaign Reform Act or BRCA, and they have also been indexed to inflation, but here’s how they currently stand…(ADVANCE SLIDE).
  • This is figure 9.5 from page 282 of your book. Let me walk you through it…you don’t need to know every detail, but let me walk you through it to give you the overview, then I’ll do some separate slides about political action committees and 501c and 527 organizations so you know what THOSE are. But this slide is important because it gives you the overview. Corporations are prohibited from contributing to the election or re-election committees of federal political candidates from their own funds. This is actually from the Tillman Act of 1907. This has been the law since 1907 in the United States and is still the law today. Corporations can give up to $10,000 per STATE political party committee per election where permitted by state law. Corporations USED to be able to give unlimited amounts to both state AND FEDERAL political party committees, but this was changed in 2002 by the Bipartisan Campaign Reform Act. You can read about why this change was made in the section entitled “Soft Money and Issue Advertising” at the bottom of page 280 in your book. Corporations can still set up a political action committee within their company, and use this vehicle to gather contributions from EMPLOYEES, including high-ranking managerial employees, which can then be given to candidates according to the limits described at the bottom of this slide next to the “Political Action Committees” box. I’ll come back to those in a minute, and on the next slide I’ll talk one more time about Political Action Committees. Corporations can also give unlimited amounts of money to private, non-profit advocacy groups called “501c” and “527” organizations. This is another way that “soft money” finds its way into election campaigns. I will come back to the 501c and 527 organizations two slides from now. Let’s continue with the overview. Under current law, individuals can give no more than $2,300 per election to each candidate running for office in a federal election. This is an important limitation. As of 2006, it takes an estimated $1.3 million to win a seat in the U.S. House of Representatives, and an estimated $7.8 million to win a seat on the U.S. Senate. If you can only collect $2,300 from each person, that needs you need to get at LEAST 565 people to contribute to your re-election campaign if you’re going to win a seat in the U.S. House of Representatives and at least 3,391 people to contribute to your re-election campaign if you’re going to win a seat in the U.S. Senate. So the THEORY here is that you will have to give lots of people a chance to “bend your ear” about their concerns, and agree to represent those concerns – or at least consider representing them – if you get elected. The THEORY is this should make the political process more democratic. But 565 people is not a very big number! And 3,391 isn’t much bigger! That’s only a tiny fraction of the total constituents within these representatives’ districts, about 0.2%! For Senators it’s not much better, about 0.3%! So there’s a bit of a gap between the theory of how contribution limits are supposed to help and the actual numbers! But it gets worse! Individuals are also allowed to give to Political Action Committees. In fact, they’re the only ones that CAN give to Political Action Committees. Corporations aren’t allowed to give, remember? They’re allowed to pay the OPERATING expenses of the PAC, but not to give directly to the PAC. And the $5,000 per year limit you see here for individuals giving to PACs is PER PAC! Individuals can give up to $42,700 per election cycle to all PACs combined! You will find this figure in the explanation in parentheses two bullets down from the “$5,000 per year to political action committees” bullet. And the PACs can EACH give up to $5,000 to a candidate. I think you’ll begin to see why the number of PACs exploded between 1986 and 2004. It’s really a very effective way around the individual expenditure limit of $2,300. It enables an individual to give a lot more than $2,300 to a candidate, because all they have to do is give only to PACs that have pledged to give 100% of the donations received to that candidate. If you create enough PACs, then an individual can give $42,700 to a single candidate, provided they are willing to give nothing to any other candidates during that election cycle. Anyway, the point is that PACs really undermine the effectiveness of the $2,300 limit per election per candidate. Notice that individuals, like corporations, can give UNLIMITED amounts of money to so-called 501c and 527 organizations. We’ll come back to those after talk about PACs. I think it’s just going to be too much to go through every single bullet point on this slide. Let me skip down to the PACs now. PACs, as we will see on the next slide, are private organizations that have been set up for the purpose of influencing the outcome of elections through some combination of campaign contributions and independent expenditures. Each PAC may give no more than $5,000 per election to an individual candidate. But if you want to give them more than $5,000, all you have to do is have someone else set up another PAC to make contributions to the same candidate. Now, federal law DOES say that if two or more PACs are under the control of the same person, they’re considered affiliated and must adhere to limits as if they were one. So you DO have to have another person start that second PAC, or you’ll get into trouble.
  • PACs have been used by labor unions to collect money from their members and disburse those monies to pro-labor candidates since at least the 1940s. But corporations really didn’t have any PACs of their own until 1974, when the FECA Amendments placing limits on individual contributions to political candidates went into effect. Legally, a company becomes a PAC and must report both their receipts and disbursements in detail to the Federal Election Commission if they receive contributions or make expenditures in excess of $1,000 to the purpose of influencing a federal election. PACs are a complex subject, but let’s just focus in on the corporate PACs, since we’re mostly interested in understanding how BUSINESSES are able to influence politics.
  • To start a PAC, a corporation must set up an account for contributions. The corporation may not put ONE PENNY of their own money in that account. Corporate PACs get their funds primarily from contributions by employees, but they are not forbidden from collecting money from other individuals, and a fraction of the contributions they receive ARE from non-employees who have the same or similar political interests as the PACs OFFICERS. The OFFICERS of a corporate PAC MUST be employees of the firm. There are no dollar limits on the overall amounts that PACs may raise and spend, but as we saw from the “eye chart” two slides ago – figure 9.5 from your book on page 282- there ARE limits on the amounts an individual PAC can give to an individual CANDIDATE, an individual NATIONAL PARTY COMMITTEE, and so on.
  • You can read about the events that lead to the passage of the Bipartisan Campaign Reform Act of 2002 in your book on pages 280 – 282. The Bipartisan Campaign Reform Act of 2002 prohibits national political party committees, such as the Democratic National Committee and the Republican National Committee, from raising or spending ANY money that is beyond the reach of FECA. Every dollar they raise and every dollar they spend now MUST BE REPORTED and IS subject to the contribution limits spelled out in figure 9.5. In other words, every dollar they spend and raise is now “hard money.” State parties may collect soft money from both corporations and individuals, but can only use it for voter registration and get-out-the-vote drives. They can’t use it for any “message” tv ads at all, whether they advocate the election or defeat of a specific candidate or not, or whether they occur within the blackout period or not, which is within 30 days of a primary election or within 60 days of a regular election. Since 90% of soft money was used for tv ads, this means the state parties are essentially out of the soft money game also. But the new 527 and 501c groups are EXEMPT from the Bipartisan Campaign Reform Act. Let’s take a closer look at these organizations and see what’s going on.
  • So they wouldn’t be able to run an ad that says “elect John McCain president.” But they WOULD be able to develop and run, at their own expense, an ad that said “this is not the time for Americans to elect a President that does not have foreign policy experience, for the following reasons,” and then list those reasons. That would be considered EDUCATION. That’s called an ISSUE ad, as distinct from an EXPRESS ADVOCACY ad. See page 281 of your textbook for the difference. And here’s the best part: all contributions made to these groups by corporations or individuals are TAX DEDUCTIBLE. Contributions you make directly to a candidate’s reelection committee, or to a national or state party committee, are NOT TAX DEDUCTIBLE. This is a HUGE loophole!
  • READ SLIDE, then say …so if anyone can PROVE that a 527 group spoke on the phone to an employee working on the reelection team of a federal political candidate, the section 527 group can be FINED and the candidate’s reelection committee can be fined. They’re not supposed to “run their ads by” the candidate’s reelection committee or ANYTHING. They are supposed to remain completely INDEPENDENT. It’s supposed to be them expressing their views about ISSUES, kind of in the spirit of FREE SPEECH – free POLITICAL speech. They have to design, schedule, and pay for the ads THEMSELVES. They are not allowed to coordinate with the candidate’s reelection committee in any way. So they don’t, right? (Shrug.) Remember, somebody has to be able to PROVE it. Do you think that leaves room for some amount of limited communication – strictly oral – done through intermediaries – with no record either of phone conversations or emails? I do. Check out the link called “Wikipedia entry on Section 527 Organizations” under “Other Interesting Links to Explore” for several examples where these 527 groups have been accused by the other party of coordinating their activities with the reelection campaign committee of a specific political candidate.
  • And a final note: READ SLIDE
  • READ SLIDE Then say: The reason it would require an amendment to the U.S. Constitution is that the U.S. Supreme Court has taken the position that spending on political advertisements is a form of speech and as such, is protected from abridgement by government by the first amendment. The only way to overrule them is to amend the constitution. That’s really hard to do. You need a 2/3rds majority in both houses of Congress and then you need 3/4ths of the state legislatures to ratify the amendment by a 51% majority. So the vast majority of Americans would have to be enthusiastically in favor of this for it to happen. Maybe within your lifetime, you and your peers will become sick enough of the relationship between money and politics to make this happen. The sentiment of the country is not nearly strong enough on this issue right now for it to happen anytime soon.
  • Making a constitutional amendment to place caps on total campaign spending is number 5 on the U.S. Public Interest Research Group’s list. Let me walk you through all five of their recommendations, then we’ll be done with this lecture. Number one is provide candidates with a full public financing option. Here’s what they mean by that: Candidates who agree to limit their campaign spending and forgo private funds, and who demonstrate sufficient support in the community by raising a threshold number of low-dollar qualifying contributions, should be given the option of accepting a public grant to fund their campaigns. Publicly financed elections would bolster the role of ordinary citizens in determining who is able to mount effective campaigns for office; place candidates on a level playing field; free aspiring officeholders from the constant burdens of fundraising; and ensure that elected officials are accountable to their constituents. Number two is to Provide free media for candidates. Here’s what they mean by that: Free TV, radio, and mail should be provided to candidates. This would decrease the cost of campaigns and would provide an opportunity for those who are not favored by wealthy donors to get their messages out. The American public owns our airwaves, which are supposed to be operated “in the public interest,” so this requirement would not impinge upon the rights of commercial broadcasters. Number three is to Provide free media for candidates. Here’s what they mean by that: Incentives for small political contributions (up to $100) such as tax credits, refund programs, and vouchers, would move us toward a small donor democracy by encouraging more ordinary citizens to participate in the political process. This would increase the voice of average Americans, enable candidates to run campaigns geared toward non-wealthy citizens, and provide a counterweight to the big money flooding into the process from large donors. Number four is to Lower contribution limits. Here’s what they mean by that: Contribution limits for all candidates and all races should be set at a level that average Americans can afford. Given that only 0.03% of voting age Americans made a $2,000 contribution for the 2006 primary elections, Congress should dramatically lower contribution limits, not increase them as they did in the Bipartisan Campaign Reform Act of 2002. Number five is to Limit campaign spending. I’ve already given you my version of that, but let me tell you what they say about it: Elections should be contests of ideas, not battles of dollars. The use of personal wealth in campaigns should be limited through spending caps so that no candidate has an unfair financial advantage. Given the Supreme Court’s recent ruling striking Vermont’s spending limits, this measure will require a constitutional amendment. These are considered pretty radical ideas right now. The vast majority of Americans either have no opinion on this subject, or would be hesitant to adopt some of these ideas, but I think they make total sense. I think if we adopted these recommendations, the entire way that government is operated and the types of policies and laws we saw coming out of Congress would DRAMATICALLY improve OVERNIGHT. I think the system we have encourages too much thinking about how we can help the wealthy, and discourages deep thought and discussion in government about how we can help the majority of Americans. I feel real strongly about this issue, as you can probably tell. THIS CONCLUDES THE CHAPTER 9 LECTURE.
  • Chapter 9 Lecture

    1. 1. Chapter 9 Lecture: Business in Politics
    2. 2. <ul><li>“ The proposal of any new law or regulation of commerce which comes from [business should be] listened to with great precaution. It comes from [people] who have a general interest to deceive and even oppress the public.” </li></ul><ul><li>- Adam Smith, 1776 </li></ul>
    3. 3. <ul><li>“ [W]e must guard against the acquisition of unwarranted influence…by the military-industrial complex. Only an alert and knowledgeable citizenry can…[ensure a proper] balance in and among national programs.” </li></ul><ul><li>- Dwight D. Eisenhower, 1961 </li></ul>
    4. 4. Business in American Politics: Dominant From the Start <ul><li>Business has been an important, if not a dominant, influence on U.S. government from the start. </li></ul><ul><li>Some say the Revolutionary War was fought to free colonial business interests from smothering British mercantile policies! </li></ul><ul><li>The Founders who drafted the Constitution were an economic elite. </li></ul>McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 9-
    5. 5. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 9- Alexander Hamilton was a very pro-business Secretary of the Treasury.
    6. 6. Business in American Politics: The Civil War (1860-1865) <ul><li>During the Civil War, some corrupt army purchasing agents accepted bribes to purchase shipments of bad meat. </li></ul><ul><li>When the war ended, the power base of southern agriculture had been decimated, and a major counterweight to the power of northern industry was lost. </li></ul>McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 9-
    7. 8. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 9- Grant’s first term: 1869-1872: The Whiskey Ring scandals. Second term: 1873-1877: The Credit Mobilier scandal. President Ulysses S. Grant
    8. 9. The Seventeenth Amendment <ul><li>Passed in 1913, instituted the direct election of U.S. senators </li></ul><ul><li>Previously, state legislators had chosen senators. </li></ul><ul><li>Corporations fought the amendment, but their motives were not pure. </li></ul>McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 9-
    9. 10. Business in American Politics: 1900-1923 <ul><li>The great political reforms of the progressive era (1900 – 1923) seemed to herald a change from “business as usual.” </li></ul><ul><li>But modern scholarship has revealed that the corruption in federal politics continued apace. </li></ul>McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 9-
    10. 11. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 9- <ul><li>President Warren G. Harding: </li></ul><ul><li>1920-1923 </li></ul><ul><li>The “Teapot Dome” scandal </li></ul>
    11. 12. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 9- The Great Depression: 1929-1935
    12. 13. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 9-
    13. 14. Franklin Delano Roosevelt and the “New Deal ” McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 9-
    14. 15. The 1960s and 1970s <ul><li>National politics became dominated by a liberal reform agenda </li></ul><ul><li>New groups rose to defy corporations </li></ul><ul><li>Business was saddled with massive new regulatory schemes </li></ul>
    15. 16. Two Broad Areas of Business Involvement in Politics LOBBYING Corporation ELECTORAL PROCESS
    16. 17. Business Lobbying Activities <ul><li>Self-representation </li></ul><ul><ul><li>More than 700 corporations have staffs of government relations experts in Washington. </li></ul></ul><ul><li>Private lobbyists </li></ul><ul><ul><li>75% of large firms hire private lobbyists </li></ul></ul><ul><ul><li>Most lobbyists are lawyers </li></ul></ul><ul><ul><li>Many are former U.S. officials </li></ul></ul><ul><li>Business Interest Groups </li></ul>
    17. 18. Business Interest Groups <ul><li>Peak Associations </li></ul><ul><ul><li>Half a dozen </li></ul></ul><ul><ul><li>Business Roundtable </li></ul></ul><ul><li>Trade Associations </li></ul><ul><ul><li>Have more influence than the peak associations because the interests of its members are more cohesive </li></ul></ul><ul><ul><li>Number over 6,000! </li></ul></ul><ul><ul><li>Often try to avoid publicity </li></ul></ul>
    18. 19. Do Lobbyists Lie to Legislators? <ul><li>Probably not </li></ul><ul><ul><li>If they did, they would have trouble getting access to the legislator in the future </li></ul></ul><ul><li>Instead they try to be useful </li></ul><ul><ul><li>Provide technical information about bills </li></ul></ul><ul><ul><li>Provide politically valuable information about how constituents and special interests stand on a particular issue </li></ul></ul><ul><ul><li>Mostly argue why it is best for the country or the state </li></ul></ul>
    19. 20. Efforts to Limit Corporate Influence <ul><li>The Tillman Act of 1907 </li></ul><ul><li>Implemented by progressive reformers angry about the role of corporate contributions in the presidential election of 1900 </li></ul><ul><li>Prohibited banks and corporations from making direct campaign contributions to candidates </li></ul>
    20. 21. The Federal Election Campaign Act (FECA) of 1971 <ul><li>Required public disclosure of campaign contributions and expenditures </li></ul><ul><li>Data for the 1972 Presidential elections brought public attention to the issue </li></ul><ul><li>Watergate investigations revealed illegal contributions </li></ul>
    21. 22. 1974 FECA Amendments <ul><li>The limits on campaign expenditures were struck down as unconstitutional in Buckley v. Valeo (1976) </li></ul><ul><li>The limits on contributions were upheld </li></ul>
    22. 24. PACs in the U.S. (2006) 4,210 Total 1,371 Other 283 Labor 935 Trade Association 1,621 Corporate Number Type
    23. 25. How Corporate PACs Work <ul><li>To start a PAC, a corporation must set up an account for contributions. </li></ul><ul><li>Corporate PACs get their funds primarily from contributions by employees . </li></ul><ul><li>The money in a PAC is disbursed to candidates based on decisions made by PAC officers, who must be corporate employees. </li></ul><ul><li>There are no dollar limits on the overall amounts that PACs may raise and spend. </li></ul>McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 9- Corporate PAC A political committee carrying a company’s name formed to make campaign contributions.
    24. 26. Soft Money <ul><li>There are various definitions of soft money, but the broadest one is “money raised or spent for the purpose of winning elections that is exempt from the reporting requirements and contribution limits of FECA.” </li></ul><ul><li>Under this definition, there used to be 4 kinds of soft money, but now there are only 3. </li></ul>
    25. 27. Soft Money <ul><li>The 3 kinds we still have are </li></ul><ul><li>Soft money raised and spent by state party committees, </li></ul><ul><li>Soft money raised and spent by section 501c and 527 organizations, and </li></ul><ul><li>Independent expenditures by individuals. </li></ul><ul><li>The kind we don’t have any more is </li></ul><ul><li>Soft money raised and spent by national party committees. </li></ul>
    26. 28. The Bipartisan Campaign Reform Act of 2002 <ul><li>National parties are prohibited from raising or spending soft money </li></ul><ul><li>State parties may raise soft money, but cannot use it for issue ads </li></ul><ul><li>Corporations can give soft money to new 527 and 501c groups, but can’t use it for ads advocating election or defeat of a candidate during blackout periods. </li></ul>
    27. 29. The Bipartisan Campaign Reform Act of 2002 <ul><li>Individuals can give soft money to new 527 and 501(c) groups, and that money CAN be used for ads advocating election or defeat of a candidate during blackout periods! </li></ul><ul><li>Candidates’ reelection committees can still use hard dollars for such ads </li></ul>
    28. 30. Section 501(c) Groups <ul><li>These are classic non-profit groups </li></ul><ul><li>They were originally set up mostly for “educational” purposes </li></ul><ul><li>Examples include </li></ul><ul><li>The Cato Institute </li></ul><ul><li>The Heritage Foundation </li></ul><ul><li>Americans for Job Security </li></ul>
    29. 31. The 501(c) Loophole <ul><li>These groups are prohibited from conducting “political campaign activities to influence elections to public office.” </li></ul><ul><li>But they are permitted to educate individuals about issues. </li></ul>
    30. 32. Section 527 Groups <ul><li>Another type of tax exempt group </li></ul><ul><li>But this time, explicitly set up for the primary purpose of influencing the nomination, election, appointment, or defeat of candidates for public office </li></ul><ul><li>Cannot make expenditures to directly advocate the election or defeat of any candidate for federal elective office </li></ul>
    31. 33. Section 527 Groups <ul><li>Can make expenditures to directly advocate the election or defeat of candidates for state or local elective office </li></ul><ul><li>Can raise money to spend on issue advocacy ads </li></ul><ul><li>Can raise money to spend on voter mobilization </li></ul>
    32. 34. Section 527 Groups <ul><li>The line between issue advocacy and candidate advocacy is a source of continued debate and litigation . </li></ul><ul><li>Any coordination between the activities of a candidate’s election committee and any 527 group is prohibited by law . </li></ul>
    33. 35. Section 527 Groups <ul><li>Federal Election Commission rulings after the 2004 election put advertisements which questioned a candidate’s character and fitness for office off-limits to 527-organizations. </li></ul>
    34. 36. What I Think <ul><li>I agree with the positions taken by the U.S. Public Interest Research Group and Common Cause. </li></ul><ul><li>I think Presidential and Congressional Races should be 100% publicly-financed. </li></ul><ul><li>This would require a Congressional Amendment. </li></ul>
    35. 37. U.S. PIRG’s Position <ul><li>Provide candidates with a full public financing option. </li></ul><ul><li>Provide free media for candidates. </li></ul><ul><li>Provide incentives for small political contributions. </li></ul><ul><li>Lower contribution limits. </li></ul><ul><li>Limit campaign spending. </li></ul>
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